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Southeast Banking Turns to Fed for Loans

From American Banker

Southeast Banking Corp. is borrowing from the Federal Reserve Bank of Atlanta, a sign that the troubled Miami-based company may be having liquidity problems, banking sources said.

Loans from the Atlanta Fed’s discount window amounted to $137 million last Wednesday, up from $48 million a week earlier, according to data released Thursday afternoon.

The figures do not break down loans made to individual banks in the Atlanta Fed’s district, but sources said the surge in borrowing was due to Southeast Banking.

The president of a community bank in South Florida said a Southeast officer told him Friday that the bank was using the discount window and “was being accommodated nicely.” The community banker, who uses Southeast as a correspondent bank, requested anonymity.

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The Atlanta Fed and spokesmen for Southeast, which has $11.2 billion in assets, declined to comment.

Banks that have short-term problems can borrow from the Federal Reserve if they put up assets as collateral. Institutions usually shy away from doing so because the marketplace perceives such borrowing as a sign that a bank is unable to maintain liquidity from the usual sources, such as customer deposits and funds purchased from correspondent banks.

Southeast has been hit hard by the real estate downturn in Florida. Its $768 million in nonperforming assets are equal to 9.22% of all its loans, a ratio considered dangerously high. Common shareholder equity on June 30 was a slim 2.2% of assets.

The company is actively seeking a merger or capital infusion and has said that a takeover might require federal assistance.

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Southeast’s deposits have declined steadily this year, to $8.9 billion at midyear from $11.25 billion on Dec. 31. Assets dwindled more slowly, to $11.2 billion from $13.4 billion.

Thomson Bankwatch, the rating agency, has given Southeast its lowest credit rating since May 31. The rating indicates Southeast would be hard pressed to buy federal funds from brokers. A Fed funds trader at one money-center bank said his credit line to Southeast was shut down months ago.

Other sources of funds are deposits from correspondent banks and the sale of investment securities. Several Florida banks said on Friday that they had dropped their correspondent relationships with Southeast.

Some analysts say Southeast’s liquidity problem is not yet a crisis. “They’re prepared for normal erosion,” J. Frederick Meinke of Raymond James Associates Inc. in St. Petersburg said, before word of the Fed borrowing. “I don’t really see the liquidity concerns sinking the bank unless there’s some piece of really horrendous news.”

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